Report: Contract disputes are getting longer, more complex

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Dive Brief:

Construction contract disputes across the world are getting longer, more complex and more expensive, according to the “Global Construction Disputes Report 2018” from design and consultancy firm Arcadis. The value of North American disputes — or total costs added to a project for the additional work being claimed — dropped for a fourth consecutive year to $19 million in 2017, compared with the $43 million global average, the report found. Meanwhile, the average length of North American disputes increased from 15.6 months in 2016 to 17.7 months last year, exceeding the global average of 14.8 months.

Contract errors and/or omissions were the top cause of disputes in North America last year, followed by poor contract administration, which was trailed by failure on the part of an owner, contractor or subcontractor to understand or comply with contractual obligations. Social infrastructure and the public sector collectively saw the most disputes while the transportation sector saw the second most.

Contract and specification review was the most effective technique for claims avoidance in 2017, the report found, while an owner or contractor’s willingness to compromise was most critical for mitigating or resolving disputes early on. Further, the report found that project teams that use early resolution techniques reach a settlement with 82% success.

Dive Insight:

The larger the scope and price tag of a project, the more possibilities there are for disagreements and misunderstandings between contracted parties.

U.S. Infrastructure projects, specifically, are trending larger and more complex as state, local and private entities ramp up their improvement plans ahead of President Donald Trump's $1.5 trillion spending plan, on hold until November. And multibillion-dollar projects in this category can be wracked with contractual challenges and project delays.

For example, the Massachusetts Bay Transportation Authority fired lead contractor consortium White-Skanska-Kiewit (WSK) from Boston's delay-plagued $2.2 billion Green Line extension in 2015 due to a mishandled contracting process. The authority cleaned up its contract management process prior to awarding the Fluor-led GLX Constructors a $1 billion contract in November. The project nearly collapsed during the 2015 contract disputes, the Boston Globe reported, but after a fourth groundbreaking ceremony, it now looks to open December 2021.